[Federal Register Volume 66, Number 78 (Monday, April 23, 2001)]
[Notices]
[Pages 20505-20510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9960]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44181; File No. SR-MSRB-2001-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Municipal Securities 
Rulemaking Board Providing Guidance on Specific Electronic Primary 
Offering and Trading Systems and Electronic Recordkeeping

April 16, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 27, 2001, the Municipal Securities Rulemaking Board (``MSRB'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') a proposed rule change as described in Items I, II, and 
III below, which Items have been prepared by MSRB. The SEC is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change consists of interpretations on the 
application of (i) rules G-32 and G-36 to new issues offerings through 
auction procedures; (ii) G-8, G-12 and G-14 to specific electronic 
trading systems; and (iii) rules G-8 and G-9 to electronic 
recordkeeping. The text of the proposed rule change is set forth below 
in italics.

Interpretation on the Application of Rules G-32 and G-36 to New Issue 
Offerings Through Auction Procedures

    Traditionally, brokers, dealers and municipal securities dealers 
(``dealers'') have underwritten new issue municipal securities through 
syndicates in which one dealer serves as the managing underwriter. In 
some cases, a single dealer may serve as the sole underwriter for a new 
issue. Typically, these underwritings are effected on an ``all-or 
none'' basis, meaning that the underwriters bid on the entire new 
issue. In addition, new issues are occasionally sold to two or more 
underwriters that have not formed a syndicate but instead each 
underwriter has purchased a separate portion of the new issue (in 
effect, each underwriter serving as the sole underwriter for its 
respective portion of the new issue).
    In the primary market in recent years, some issuers have issued 
their new offerings through an electronic ``auction'' process that 
permits the taking of bids from both dealers and investors directly. In 
some cases, these bids may be taken on other than an all-or-none basis, 
with bidders making separate bids on each maturity of a new issue. The 
issuer may engage a dealer as an auction agent to conduct the auction 
process on its behalf. In addition, to effectuate the transfer of the 
securities from the issuer to the winning bidders and for certain other 
purposes connected with the auction process, the issuer may engage a 
dealer to serve in the role of settlement agent or in some other 
intermediary role.
    Although the Municipal Securities Rulemaking Board (the ``MSRB'') 
has not examined all forms that these auction agent, settlement agent 
or other intermediary roles (collectively referred to as ``dealer-
intermediaries'') may take, it believes that in most cases such dealer-
intermediary is effecting a transaction between the issuer and each of 
the winning bidders. The MSRB also believes that in many cases such 
dealer-intermediary may be acting as an underwriter, as such term is 
defined in Rule 15c2-12(f)(8) under the Securities Exchange Act of 
1934, as amended (the ``Exchange Act'').\3\ A dealer-intermediary that 
is effecting transactions in connection with such an auction process 
has certain obligations under rule G-32. If it is also an underwriter 
with respect to an offering, it has certain additional obligations 
under rules G-32 and G-36.
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    \3\ Questions regarding whether an entity acting in an 
intermediary role is effecting a transaction or whether a dealer 
acting in such an intermediary role for a particular primary 
offering of municipal securities would constitute an underwriter 
should be addressed to staff of the Securities and Exchange 
Commission.
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Application of Rule G-32, on Disclosures in Connection With New Issues

    Rule G-32(a) generally requires that any dealer (i.e., not just the 
underwriter) selling municipal securities to a customer during the 
issue's underwriting period must deliver the

[[Page 20506]]

official statement in final form, if any, to the customer by settlement 
of the transaction. Any dealer selling a new issue municipal security 
to another dealer is obligated under rule G-32(b) to send such official 
statement to the purchasing dealer within one business day of request. 
In addition, under rule G-32(c), the managing or sole underwriter for 
new issue municipal securities is obligated to send to any dealer 
purchasing such securities (regardless of whether the securities were 
purchased from such managing or sole underwriter or from another 
dealer), within one business day of request, one official statement 
plus one additional copy per $100,000 par value of the new issue 
municipal securities sold by such dealer to customers. Where multiple 
underwriters underwrite a new issue without forming an underwriting 
syndicate, each underwriter is considered a sole underwriter for 
purposes of rule G-32 and therefore each must undertake the official 
statement delivery obligation described in the preceding sentence.
    If a dealer-intermediary is involved in an auction or similar 
process of primary offering of municipal securities in which all or a 
portion of the securities are sold directly to investors that have 
placed winning bids with the issuer, the dealer-intermediary is 
obligated under rule G-32(a) to deliver an official statement to such 
investors by settlement of their purchases. If all or a portion of the 
securities are sold to other dealers that have placed winning bids with 
the issuer, the dealer-intermediary is obligated under rule G-32(b) to 
send an official statement to such purchasing dealers within one 
business day of a request. Further, to the extent that the dealer-
intermediary is an underwriter, such dealer-intermediary typically 
would have the obligations of a sole underwriter under rule G-32(c) to 
distribute the official statement to any other dealer that subsequently 
purchases the securities during the underwriting period and requests a 
copy. Any dealer that has placed a winning bid in a new issue auction 
would have the same distribution responsibility under rule G-32(c), to 
the extent that it is acting as an underwriter.
    The MSRB views rule G-32 as permitting one or more dealer-
intermediaries involved in an auction process to enter into an 
agreement with one or more other dealers that have purchased securities 
through a winning bid in which the parties agree that one such dealer 
(i.e., a dealer-intermediary or one of the winning bidders) will serve 
in the role of managing underwriter for purposes of rule G-32. In such 
a case, such single dealer (rather than all dealers individually) would 
have the responsibility for distribution of official statements to the 
marketplace typically undertaken by a managing or sole underwriter 
under rule G-32(c).\4\ Such an agreement may be entered into by less 
than all dealers that have purchased securities through the auction 
process. All dealers that agree to delegate this duty to a single 
dealer may rely on such delegation to the same extent as if they had in 
fact formed an underwriting syndicate.
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    \4\ Each dealer that is party to this agreement would be 
required to inform any dealer seeking copies of the official 
statement from such dealer under rule G-32(c) of the identity of the 
dealer that has by agreement undertaken this obligation or, in the 
alternative, may fulfill the request for official statements. In 
either case, the dealer would be required to act promptly so as 
either to permit the dealer undertaking the distribution obligation 
to fulfill its duty in a timely manner or to provide the official 
statement itself in the time required by the rule. Such agreement 
would not affect the obligated of a dealer that sells new issue 
securities to another dealer to provide a copy of the official 
statement to such dealer upon request as required under rule G-
32(b), nor would it affect the obligation to deliver official 
statements to customers as required under rule G-32(a).
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Application of Rule G-36, on Delivery of Official Statements, Advance 
Refunding Documents and Forms G-36(OS) and G-36(ARD) to the MSRB

    Rule G-36 requires that the managing or sole underwriter for most 
primary offerings send the official statement and Form G-36(OS) to the 
MSRB within certain time frames set forth in the rule. In addition, if 
the new issue is an advance refunding and an advance refunding document 
has been prepared, the advance refunding document and Form G-36(ARD) 
also must be sent to the MSRB by the managing or sole underwriter. 
Where multiple underwriters underwrite an offering without forming an 
underwriting syndicate, the MSRB has stated that each underwriter would 
have the role of sole underwriter for purposes of rule G-36 and 
therefore each would have a separate obligation to send official 
statements, advance refunding documents and Forms G-36(OS) and G-
36(ARD) to the MSRB.\5\
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    \5\ See Rule G-36 Interpretive Letter--Multiple underwriters, 
MSRB interpretation of January 30, 1998, MSRB Rule Book (January 1, 
2001) at 189.
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    To the extent that the dealer-intermediary in an auction or similar 
process of primary offering of municipal securities is an underwriter 
for purposes of the Exchange Act, such dealer-intermediary would have 
obligations under rule G-36. If all or a portion of the securities are 
sold directly to investors that have placed winning bids with the 
issuer, the dealer-intermediary would be obligated to send the official 
statement and Form G-36(OS) (as well as any applicable advance 
refunding document and Form G-36(ARD)) to the MSRB with respect to the 
issue or portion thereof purchased by investors. If all or a portion of 
the securities are sold to other dealers that have placed winning bids 
with the issuer, the dealer-intermediary and each of the purchasing 
dealers (to the extent that they are underwriters for purposes of the 
Exchange Act) also typically would be separately obligated to send such 
documents to the MSRB with respect to the issue or portion thereof 
purchased by dealers.
    To avoid duplicative filings under rule G-36, the MSRB believes 
that one or more dealer-intermediaries involved in an auction process 
may enter into an agreement with one or more other dealers that have 
purchased securities through a winning bid in which the parties agree 
that one such dealer (i.e., a dealer-intermediary or one of the winning 
bidders) will serve in the role of managing underwriter for purposes of 
rule G-36. In such a case, such single dealer (rather than all dealers 
individually) would have the responsibility for sending the official 
statement, advance refunding document and Forms G-36(OS) and G-36(ARD) 
to the MSRB.\6\ Such an agreement may be entered into by less than all 
dealers that have purchased securities. All dealers that agree to 
delegate this duty to a single dealer may rely on such delegation to 
the same extent as if they had in fact formed an underwriting 
syndicate.
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    \6\ The dealer designated to act as managing underwriter for 
purposes of rule G-36 would be billed the full amount of any 
applicable underwriting assessment due under rule A-13, on 
underwriting and transaction assessments. Such dealer would be 
permitted, in turn, to bill each other dealer that is party to the 
agreement for its share of the assessment.
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* * * * *

Interpretation on the Application of Rules G-8, G-12, and G-14 to 
Specific Electronic Trading Systems

    The Municipal Securities Rulemaking Board (the ``MSRB'') 
understands that, over time, the advent of new trading systems will 
present novel situations in applying MSRB uniform practice rules. The 
MSRB is prepared to provide interpretative guidance in these situations 
as they arise, and, if necessary, implement formal rule interpretations 
or rule changes to provide clarity or prevent unintended results in 
novel situations. The MSRB has been asked to provide guidance on the 
application of certain of its rules to

[[Page 20507]]

transactions effected on a proposed electronic trading system with 
features similar to those described below.

Description of System

    The system is an electronic trading system offering a variety of 
trading services and operated by an entity registered as a dealer under 
the Securities Exchange Act of 1934. The system is qualified as an 
alternative trading system under Regulation ATS. Trading in the system 
is limited to brokers, dealers and municipal securities dealers 
(``dealers''). Purchase and sale contracts are created in the system 
through various types of electronic communications via the system, 
including acceptance of priced offers, a bid-wanted process, and 
through negotiation by system participants with each other. System 
rules govern how the bid/offer process is conducted and otherwise 
govern how contracts are formed between buyers and sellers.
    Participants are, or may be, anonymous during the bid/offer/
negotiation process. After a sales contract is formed, the system 
immediately sends an electronic communication to the buyer and seller, 
noting the transaction details as well as the identity of the contra-
party. The transaction is then sent by the buyer and seller to a 
registered securities clearing agency for comparison and is settled 
without involvement of the system operator.
    The system operator does not take a position in the securities 
traded on the system, even for clearance purposes. Dealers trading on 
the system are required by system rules to clear and settle 
transactions directly with each other even though the parties do not 
know each other at the time the sale contract is formed. If a dealer 
using the system does not wish to do business with another specific 
contra-party using the system, it may direct the system operator to 
adjust the system so that contracts with that contra-party cannot be 
formed through the system.

Application of Certain Uniform Practice Rules to System

    It appears to the MSRB that the dealer operating the system is 
effecting agency transactions for dealer clients.\7\ The system 
operator does not have a role in clearing the transactions and is not 
taking principal positions in the securities being traded. However, the 
system operator is participating in the transactions at key points by 
providing anonymity to buyers and sellers during the formation of 
contracts and by setting system rules for the formation of contracts. 
Consequently, all MSRB rules generally applicable to inter-dealer 
transactions would apply except to the extent that such rules 
explicitly, or by context, are limited to principal transactions.
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    \7\ This situation can be contrasted with the typical broker's 
broker operation in which the broker's broker effects riskless 
principal transactions for dealer clients. The nature of the 
transactions as either agency or principal is governed for purposes 
of MSRB rules by whether a principal position is taken with respect 
to the security. ``Riskless principal'' transactions in this context 
are considered to be principal transactions in which a dealer has a 
firm order on one side at the time it executes a matching 
transaction on the contra-side. For purposes of the uniform practice 
rules, the MSRB considers broker's broker transactions to be 
riskless principal transactions even though the broker's broker may 
be acting for one party and may have agency or fiduciary obligations 
toward that party.
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Automated Comparison

    One issue raised by the description of the system above is the 
planned method of clearance and settlement. Rule G-12(f)(i) requires 
that inter-dealer transactions be compared in an automated comparison 
system operated by a clearing corporation registered with the 
Securities and Exchange Commission. The purpose of rule G-12(f)(i) is 
to facilitate clearance and settlement of inter-dealer transactions. In 
this case, the system operator: (i) Electronically communicates the 
transaction details to the buyer and seller; (ii) requires the buyer 
and seller to compare the transaction directly with each other in a 
registered securities clearing corporation; and (iii) is not otherwise 
involved in clearing or settling the transaction. The MSRB believes 
that under these circumstances, it is unnecessary for the system 
operator to obtain a separate comparison of its agency transactions 
with the buyer and seller.
    Although automated comparison is not required between the system 
operator and the buyer and seller, the transaction details sent to each 
party by the system must conform to the information requirements for 
inter-dealer confirmations contained in rule G-12(c). Since system 
participants implicitly agree to receive this information in electronic 
form by participating in the system, a paper confirmation is not 
necessary. Also, the system operator may have an agreement with its 
participants that participants are not required to confirm the 
transactions back to the system operator, which normally would be 
required by rule G-12(c).
    The system operator, which is subject to Regulation ATS, will be 
governed by the recordkeeping requirements of Regulation ATS for 
purposes of transaction records, including municipal securities 
transactions. However, the system operator also must comply with any 
applicable recordkeeping requirements in rule G-8(f), which relate to 
records specific to effecting municipal securities transactions. With 
respect to recordkeeping by dealers using the system, the specific 
procedures associated with this system require that transactions be 
recorded as principal transactions directly between buyer and seller, 
with notations of the fact that the transactions were effected through 
the system.

Transaction Reporting

    Rule G-14 requires inter-dealer transactions to be reported to the 
MSRB for the purposes of price transparency, market surveillance and 
fee assessment. The mechanism for reporting inter-dealer transactions 
is through National Securities Clearing Corporation (``NSCC''). In the 
system described above, the buyer and seller clear and settle 
transactions directly as principals with each other, and without the 
involvement of the dealer operating the system. The buyer and seller 
therefore will report transactions directly to NSCC. No transaction or 
pricing information will be lost if the system operator does not report 
the transaction. Consequently, it is not necessary for the system 
operator separately to report the transactions tothe MSRB.
* * * * *

Interpretation on the Application of Rules G-8 and G-9 to Electronic 
Recordkeeping

    The Municipal Securities Rulemaking Board (the ``MSRB'') has 
received requests for interpretive guidance regarding the maintenance 
in electronic form of records under rule G-8, on books and records, and 
rule G-9, on preservation of records. As the MSRB has previously noted, 
rules G-8 and G-9 provide flexibility to brokers, dealers and municipal 
securities dealers (``delears'') concerning the manner in which their 
records are to be maintained, recognizing that various recordkeeping 
systems could provide a complete and accurate record of a dealer's 
municipal securities activities.\8\ Part of the reason for providing 
this flexibility was that a variety of enforcement agencies, including 
the Securities and Exchange Commission,

[[Page 20508]]

NASD Regulation, Inc. and the banking regulatory agencies, all may 
inspect dealer records.
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    \8\ See Rule G-8 Interpretation--Interpretive Notice on 
Recordkeeping, July 29, 1977, reprinted in MSRB Rule Book (January 
1, 2001) at 42.
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    Rule G-8(b) does not specify that a dealer is required to maintain 
its books and records in a specific manner so long as the information 
required to be shown by the rule is clearly and accurately reflected 
and provides an adequate basis for the audit of such information. 
Further, rule G-9(e) allows records to be retained electronically 
provided that the dealer has adequate facilities for ready retrieval 
and inspection of any such record and for production of easily readable 
facsimile copies.
    The MSRB previously has recognized that efficiencies would be 
obtained by the replacement of paper files with electronic data bases 
and filing systems and stated that it generally allows records to be 
retained in that form.\9\ In noting that increased automation would 
likely lead to elimination of most physical records, the MSRB has 
stated that electronic trading tickets and automated customer account 
information satisfy the recordkeeping requirements of rule G-8 so long 
as such information is maintained in compliance with rule G-9(e). The 
MSRB believes that this position also applies with respect to the other 
recordkeeping requirements of rule G-8 so long as such information is 
maintained in compliance with rule G-9(e) and the appropriate 
enforcement agency is satisfied that such manner of record creation and 
retention provides an adequate basis for the audit of the information 
to be maintained. In particular, the MSRB believes that a dealer that 
meets the requirements of Rule 17a-4(f) under the Securities Exchange 
Act of 1934 with respect to maintenance and preservation of required 
books and records in the formats described therein would presumptively 
meet the requirements of rule G-9(e).
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    \9\ See Rule G-8 Interpretive Letters--Use of electronic 
signatures, MSRB interpretation of February 27, 1989, reprinted in 
MSRB Rule Book (January 1, 2001) at 47.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the SEC, the MSRB included statements concerning 
the purpose of and basis for the proposed rule change and discussed any 
comments it received on the proposed rule change. The texts of these 
statements may be examined at the places specified in Item IV below. 
The MSRB has prepared summaries, set forth in Sections A, B, and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In May 2000, the MSRB hosted a roundtable to begin a discussion 
about the use of electronic trading systems in municipal securities and 
the application of the MSRB's rules to existing and proposed electronic 
trading systems. During that roundtable, as well as during subsequent 
conservations with industry members, it appeared that there was 
significant confusion about the applicability of MSRB rules to brokers, 
dealers and municipal securities dealers (``dealers'') who operate such 
systems. In addition, questions were raised regarding the applicability 
of MSRB rules in the context of electronic auction procedures in the 
new issue market and the ability of dealers to make and maintain books 
and records in an electronic format. As an outgrowth of the roundtable 
and these industry inquiries, the MSRB determined to provide 
interpretive guidance relating to the application of (i) rules G-32 and 
G-36 to new issue offerings through auction procedures, (ii) rules G-8, 
G-12 and G-14 to specific electronic trading systems, and (iii) rules 
G-8 and G-9 to electronic recordkeeping.
    In the interpretive guidance relating to the application of rules 
G-32 and G-36 to new issue offerings through auction procedures, the 
MSRB proposes to clarify that dealers serving as auction agent, 
settlement agent or other intermediary role in such auction sales of 
new issues by issuers have the same responsibilities relating to 
distribution of official statements and other documents as do dealers 
selling new issue municipal securities under rule G-32 and, in some 
circumstances, as underwriters under rules G-32 and G-36. The MSRB 
proposes to provide guidance on determining where the responsibilities 
would lie when multiple dealers participate in a primary offering 
without forming a syndicate.
    In the interpretive guidance relating to the application of rules 
G-8, G-12 and G-14 to specific electronic trading systems, the MSRB 
proposes to provide guidance on the application of these rules to 
transactions effected on a proposed electronic trading system. The MSRB 
summarizes the relevant features of the proposed system and proposes 
guidance in connection with clearance and settlement under rule G-12, 
transaction reporting under rule G-14 and certain recordkeeping 
obligations under rule G-8.
    In the interpretive guidance relating to the application of rules 
G-8 and G-9 to electronic recordkeeping, the MSRB proposes to provide 
guidance as to the creation and maintenance of books and records 
required under such rules in electronic format.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act,\10\ which requires, among other 
things, that the MSRB's rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in municipal 
securities, to remove impediments to and perfect the mechanism of a 
free and open market in municipal securities, and, in general, to 
protect investors and the public interest.
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    \10\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB believes that the proposed rule change is consistent with 
the Act because it provides guidance to dealers in complying with 
existing MSRB rules.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act because it would apply equally to all 
dealers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    On September 28, 2000, the MSRB published a notice seeking comment 
on a draft interpretive guidance on dealer responsibilities in 
connection with both electronic and traditional municipal securities 
transactions (the ``Draft Guidance'').\11\ The Draft Guidance presented 
the MSRB's views regarding certain compliance issues arising under 
rules G-8, G-9, G-12, G-14, G-32 and G-36.\12\ The MSRB received seven

[[Page 20509]]

letters commenting on the discussion of these rules set forth in the 
Draft Guidance.\13\ After reviewing these comments, the MSRB approved 
the proposed rule change for filing with the SEC.\14\
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    \11\ ``Notice and Draft Interpretive Guidance on Dealer 
Responsibilities in Connection with Both Electronic and Traditional 
Municipal Securities Transactions,'' MSRB Reports, Vol. 20, No. 2 
(November 2000) at 3. See also the clarification to the Draft 
Guidance published on November 17, 2000 at the MSRB's web site 
(http://206.233.231.2/msrb/archive/etrading.htm).
    \12\ The Draft Guidance also presented, in draft form, the 
MSRB's views regarding certain compliance issues arising under rules 
G-13, G-17, G-18 and G-19. The MSRB's draft guidance relating to 
these rules is not included in this proposed rule change.
    \13\ Letters to Carolyn Walsh, Assistant General Counsel, MSRB, 
from Ida W. Draim, Dickstein Shapiro Morin & Oshinsky LLP, dated 
October 25, 2000 (``Dickstein Shapiro Letter''); William L. Nichols, 
Chief Operating Officer, ValuBond Securities, Inc., dated November 
30, 2000 (``ValuBond Letter''); and Bradley W. Wendt, President and 
Chief Operating Officer, and David L. Becker, General Counsel, 
MuniGroup.com LLC, dated December 1, 2000 (``MuniGroup Letter''); 
and letters to Ernesto A. Lanza, Associate General Counsel, MSRB, 
from Michael J. Marz, Vice Chairman, First Southwest Company, dated 
November 28, 2000 (``First Southwest Letter''); W. Hardy Callcott, 
Senior Vice President and General Counsel, Charles Schwab & Co., 
Inc., dated November 30, 2000 (``Charles Schwab Letter''); Roger G. 
Hayes, Chair, and Aimee S. Brown, Vice Chair, The Bond Market 
Association Municipal E-Commerce Task Force, dated December 1, 2000 
(``TBMA I Letter''); and LYnette Kelly Hotchkiss, Vice President and 
Associate General Counsel, The Bond Market Association, dated 
January 4, 2001 (``TBMA II Letter''). These letters also discussed, 
and MSRB received additional letters commenting on, other portions 
of the Draft Guidance.
    \14\ Comments received by the MSRB with respect to rules G-13, 
G-17, G-18 and G-19 will be addressed at a future date.
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    As described above, the MSRB published draft interpretive guidance 
regarding the application of rules G-32 and G-36 to new issue offerings 
through auction procedures. Two commentators supported the MSRB's 
guidance on rules G-32 and G-36.\15\ As a result, the MSRB has 
determined to file the proposed interpretative guidance with the SEC.
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    \15\ See MuniGroup and TBMA I Letters. One commentator sought 
guidance as to the status of a specific website operator as an 
underwriter for purposes of rules G-32 and G-36. See Dickstein 
Shapiro Letter. As the MSRB noted in the Draft Guidance, a 
determination of whether a dealer would constitute an underwriter is 
based on an analysis of relevant Act provisions and such questions 
should be addressed to SEC staff. See also note 3 supra.
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    One commentator, however, mistakenly believed that the guidance 
provided for the delegation to the managing underwriter of the task of 
distributing official statements to customers, to which it is 
opposed.\16\ The guidance does not provide for such delegation. This 
commentator suggested that the MSRB and rule G-32 to permit delivery to 
the customer of a preliminary official statement by settlement, with a 
final official statement to be sent as soon as possible thereafter. The 
MSRB has repeatedly emphasized the importance of ensuring that the 
customer receives the final official statement by settlement.\17\ At 
the same time, the MSRB recognizes some of the inherent difficulties in 
meeting this obligation and has begun exploring possible approaches to 
ensuring more efficient and effective delivery of material information 
in the primary market in a timely manner.\18\
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    \16\ See Charles Schwab Letter.
    \17\ See, e.g., ``Official Statement Deliveries Under Rules G-32 
and G-36 and Exchange Act Rule 15c2-12,'' MSRB Reports, Vol. 19, No. 
3 (September 1999) at 29; Rule G-32 Interpretation--Notice Regarding 
the Disclosure Obligations of Brokers, Dealers and Municipal 
Securities Dealers in Connection with New Issue Municipal Securities 
Under Rule G-32, November 19, 1998, reprinted in MSRB Rule Book 
(January 1, 2001) at 160.
    \18\ See ``MSRB Discussion Paper on Disclosure in the Municipal 
Securities Market'' published on December 21, 2000 at the MSRB's web 
site (http://www.msrb.org/msrb1/whatsnew/DiscussionPaper.htm).
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    In addition, two commentators suggested that the MSRB endorse and 
support the use of electronic documents, including official 
statements.\19\ One commentator noted that the MSRB has sought to 
encourage such use through its proposal on electronic filings under 
rule G-36.\20\ In addition to this proposal, the MSRB has made clear 
that official statements may be delivered in electronic format for 
purposes of rule G-32 so long as certain requirements are met.\21\ 
Further, as noted above, the MSRB has begun exploring possible 
approaches to improving the process of disseminating disclosure 
materials, including by means of electronic document delivery.
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    \19\ See MuniGroup and ValuBond Letters.
    \20\ See TBMA II Letter, referring to ``Electronic Submission of 
Official Statements, Advance Refunding Documents and Forms G-36(OS) 
and G-36(ARD) to the MSRB,'' MSRB Reports, Vol. 20, No. 2 (November 
2000) at 17.
    \21\ See Rule G-32 Interpretation--Notice Regarding Electronic 
Delivery and Receipt of Information by Brokers, Dealers and 
Municipal Securities Dealers, November 20, 1998, reprinted in MSRB 
Rule Book (January 1, 2001) at 163.
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2. Comments on Application of Rules G-8, G-12 and G-14 to Specific 
Electronic Trading Systems
    As discussed above, the MSRB published draft interpretive guidance 
regarding the application of rules G-8, G-12 and G-14 to a specific 
electronic trading system. One commentator stated that the MSRB's 
allocation of responsibilities set forth in the guidance relating to 
rules G-8, G-12 and G-14 as applied to such dealer-to-dealer electronic 
trading system is appropriate.\22\ As a result, the MSRB has determined 
to file the proposed interpretative guidance with the SEC.
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    \22\ See MuniGroup Letter. Another commentator requested 
interpretive guidance on the application of MSRB rules to a 
different proposed electronic system, noting difficulties that such 
system would have in complying with certain provisions of rules G-12 
and G-14. See Dickstein Shapiro Letter. The MSRB does not have 
sufficient information regarding this system to provide guidance at 
this time and will undertake further discussions of the relevant 
factors with this commentator.
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3. Comments on Application of Rules G-8 and G-9 to Electronic 
Recordkeeping
    The MSRB did not seek comment on the creation and maintenance of 
dealer books and records in electronic format. However, three 
commentators suggested that the MSRB affirmatively state that 
electronic storage of required records satisfies the recordkeeping 
requirements of rules G-8 and G-9 and that dealers may contract with 
third parties to retain electronic records under rule G-9.\23\ As a 
result, the MSRB has determined to file proposed interpretative 
guidance with the SEC regarding electronic recordkeeping under rules G-
8 and G-9.
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    \23\ See First Southwest, MuniGroup and TBMA I Letters.
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III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing MSRB rule and, therefore, has become 
effective pursuant to Section 19(b)(3)(A) of the Act,\24\ and 
subparagraph (f) of Rule 19b-4 thereunder.\25\ At any time within 60 
days of the filing of such proposed rule change, the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the SEC, and all written communications relating to the proposed rule 
change between the SEC and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5

[[Page 20510]]

U.S.C. 552, will be available for inspection and copying in the SEC's 
Public Reference Room. Copies of the filing will also be available for 
inspection and copying at the MSRB's principal offices. All submissions 
should refer to File No. SR-MSRB-2001-01 and should be submitted by May 
1, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-9960 Filed 4-20-01; 8:45 am]
BILLING CODE 8010-01-M